CANADA FX DEBT-C$ slumps to 4-1/2-yr low, hit by Yellen comments

Reuters Staff

4 Min Read

* Canadian dollar at C$1.1245 or 88.93 U.S. cents
* Bond prices lower across the maturity curve
(Recasts, adds details on Fed, quote, updates prices)
By Leah Schnurr
TORONTO, March 19 (Reuters) - The Canadian dollar fell to a
more than 4-1/2-year low against the greenback on Wednesday, hit
by the double-whammy of a more dovish-than-expected central bank
at home and concerns the U.S. Federal Reserve could raise rates
sooner than had been anticipated.
After several weeks of consolidating in a relatively narrow
trading range, analysts said the sharp move could mark a
resumption of the bearish attitude toward the loonie that
hammered the currency at the beginning of the year.
The Canadian dollar started the day weaker but selling
picked up in the afternoon, sending it through the key C$1.12
level after the Fed released a statement revamping its guidance
on when it could eventually raise interest rates.
The sell-off accelerated further after Chair Janet Yellen
said the Fed will probably end its stimulative bond-buying
program this coming fall and could start raising rates around
six months later.
"I was very surprised to hear her say she thought the
considerable period probably meant something like six months,
but we'll just have to see. Most people would have read the
statement on that and thought that's like a year," said Greg
Anderson, global head of foreign exchange strategy at BMO
Capital Markets in New York.
"So where she's saying the end of taper in October, six
months from there, that means March 2015. Obviously she's
throwing stuff out there and saying it's tenuous, but that's
still 6 months sooner than I think most people had on their
radar screens."
The Canadian dollar touched a session low of
C$1.1273 shortly after Yellen's comments, its weakest level
since July 2009. It ended the session at C$1.1245 to the
greenback, or 88.93 U.S. cents, weaker than Tuesday's close of
C$1.1137.
Uncertainty about U.S. interest rates comes on the heels of
comments from Bank of Canada Governor Stephen Poloz that
reinforced the view that rates in Canada will stay low for some
time.
The drop in the loonie likely signals a resumption of the
trade seen in January that took the currency sharply lower, said
Shaun Osborne, chief currency strategist at TD Securities in
Toronto.
Osborne has a target for the loonie to fall to C$1.1760, or
85 U.S. cents, by end of June.
Monetary policy has been a major driver of the Canadian
dollar in recent months after the Bank of Canada shifted gears
last year by dropping any mention of interest rate hikes on the
horizon.
"Most people in the market have been bearish on the Canadian
dollar, but they backed off on their position and didn't really
have it on in size going into the last several days," said
Anderson.
"As a result you could have continued extension over the
next couple days as people say, 'I missed it, but that is my
favorite trade, and I've got to get back in.'"
On a technical basis, there's little in the way of the
currency until the C$1.15 level, said Anderson. While he doesn't
expect the loonie to fall that far over the next few days, "it
wouldn't shock me to get to C$1.1350."
Analysts said there was little impact on the currency from
the resignation of Jim Flaherty as finance minister. Former
Energy Minister Joe Oliver was named Canada's new finance
minister on Wednesday and is seen as likely to stay the course
on fiscal policy.
Canadian government bond prices were lower across the
maturity curve, with the two-year down 10-1/2
Canadian cents to yield 1.063 percent and the benchmark 10-year
down 63 Canadian cents to yield 2.475 percent.